Best Practices: Category Management

Ad Dynamics Best Practice Series Best Practices: Category Management Strategic approaches to top business issues for retailers and manufacturers W hether you are a Merchant at a retailer or a Category Manager for a supplier, it is your responsibility to ensure your category excels. This is a difficult challenge given the amount of competition within each product category. For retailers, specific product categories have to perform well against not only competitive retailers, but also against other items on the shelf within their own store. Suppliers face competition in the form of other suppliers, as well as other categories that impede efforts to drive sales for the product category. Add to the mix the confluence of print and digital promotions and understanding how to best approach the challenges that come with managing a category is difficult. With the continued diversification of the promotional landscape, it has never been more important to have a comprehensive approach to managing a category. Print is still the most heavily used method for receiving promotions by shoppers, however, efficacy of those promotions are increasingly impacted by digital media. While many Category Managers are charged with monitoring promotional activity in print, consideration of digital promotions in addition to print is the only way to have a full understanding of what is influencing shoppers as to where they shop and what they buy. In this Best Practice Series, we will identify the top challenges for Category Managers, and recommend some best-in-class strategies to address those challenges. The tactics that are discussed can help Category Managers gain an understanding of what is impacting results across all media types. Key Takeaways Increasing promotional share across both print and digital media can help grow a category. For both Category Managers and Merchants, always include competitive promotional analysis to support your efforts to gain promotional share relative to your competitors and other categories on your shelves. Losses on promoted price are predictable through the use of competitive promotional analysis. Retailers and manufacturers can minimize losses on price through historical promoted pricing analysis on like items within a channel and/or category. Identifying and executing the optimum promotional frequency for a category or product is an effective way to drive growth. Be aware that it is not always best to be promoted more frequently, as the impact of your promotion may be diluted in the eyes of the shopper. Make sure you are well-versed in the competitive promotional timing in the weeks leading up to key calendar shopping events. A promotion run even a little too early or late may miss out on optimal lift during the most important sales periods of the year. Learn More For more insight into the entire promotional landscape or an analysis of your digital and print strategies, call at 1.800.235.3781 or e-mail perspectives@addynamics.com. www.addynamics.com

Challenge 1: Ad Share vs. Competition Manufacturer One of the top challenges facing Category Managers for manufacturing companies is ensuring their brands and products are receiving, at a minimum, their fair share of promotions. For many, fair share means your brands and products receive the same promotional share as your market share. For example, if your brand or product makes up 15% of the market for a particular category, then your promotional share within your category should be at least 15%. This seems like a simple equation, but all too often manufacturers find that their market share vastly outpaces their promotional share. In some cases, promotional share designed to support your brands and products is, in actuality, being allocated to competitive brands and products. If you are not getting your fair share of promotions, the performance of your brands and products is at risk. To address this challenge, you need to have a strategic process in place to easily identify when and where your share may be declining. The first step is monitoring your promotional share relative to competition. Using Ad Dynamics methodology, manufacturers receive recurring weekly and monthly summaries of their ad share by account, and their competitors ad shares by account. It is beneficial to view this information from both a year-to-date and year-over-year perspective to understand how your brands and products are being promoted in the most recent time period relative to the same period the previous year and to account for any changes in market conditions. Using this information, manufacturers can quickly identify if their share is up or down relative to past performance, and at which accounts. Challenge 1: Ad Share vs. Competition Retailer From the retailer perspective, Category Management poses a different set of challenges. There is a constant struggle against other categories and Merchants to win ad space for your category. The more ad space your merchandising managers afford your category relative to competitors, the better. The tough part in this process is making a case that your category should continue to receive the same level of exposure, or even gain share. An effective way to make a strong case for your category is through competitive promotional analysis. If you are a Merchant going through circular planning, incorporating competitive promotional analysis in the planning process can be the difference between winning or losing ad share. For example, a Merchant at an office supplies store responsible for the computer printers category is working to win more ad space for a particular planning week, as their sales results for the same week the previous year were worse than expected. Using Ad Dynamics s retailer comparison reporting, the Merchant could quickly identify that on the same week the previous year, one of their top competing retailers allocated 15% of their circular to computer printers, while the Merchant was allocated only 5% of the circular. This information allows the Merchant to make the case that promotional share had a heavy bearing on sales results the previous year and that additional share is justified in the current year. 2 Ad Dynamics Best Practice Series

Challenge 2: Pricing vs. Competition Manufacturer Pricing, more than any other promotional data, influences shoppers on where they shop and what they buy. As a manufacturer, if your competitor s promoted price is lower than yours on a given week, there is a good chance you will not see the expected lift from that promotion. Conversely, if your product is promoted at too low a price too frequently, there is a risk of inadvertently resetting shopper expectations of how much they should be paying for your product. A Category Manager for a manufacturer knows where their brands and products should be priced. The difficult part is monitoring your retailer s execution of that pricing relative to your competition, and adjusting the execution if needed. To address this challenge, Category Managers need to understand at what price point their products and competitive products have been promoted. Leveraging Ad Dynamics s price alert reporting allows Category Managers to know each week whether their scheduled promotion ran above or below pre-defined pricing thresholds. Additionally, keeping a running calendar of advertised price points over an extended period for both your products and your competitors allows for easy identification of price trends, without getting caught up in the week-to-week detail. This calendar can be used to plan ahead against weeks on which your competitor had a better price the previous year, ultimately maximizing the impact of your price promotion. Challenge 2: Pricing vs. Competition Retailer As is the case for Category Managers, promotional pricing strategy is of paramount importance for Merchants. How your category promotion is priced relative to competition can determine the success or failure of your promotion in driving traffic and sales. A best practice for Merchants to proof against competitive price threats is understanding when and where you have won or lost on price historically. For instance, if you work for a regional grocer operating against two in-market competitive retailers, knowing at what price those competitors have featured items within your category over the past two years will allow you to be reasonably confident that the action you take based on that information will keep you competitive. Keep in mind that the action does not always have to be a price change. If your competitor generally runs a significantly lower promoted price on a particular category or product, it may align better with your overall pricing strategy to remove that product from the promotional calendar for that week. Knowing the expected promotional price your competitors will feature on a specific product well in advance of your scheduled ad date will minimize promotional losses, and ultimately optimize the impact of your promoted price. The Power of Market Intelligence 3

Challenge 3: Frequency vs. Competition Manufacturer Each year manufacturers with a tradespend or co-op program allocate funds to their retailer partners in exchange for a certain number of promotional placements. Whether those funds translate to a handful of placements in print, a few in online, and some in email, it is your retailer partners who determine when and how often your products are placed. As a Category Manager, ad frequency affects how well your category and products perform throughout the year. You may find it is best for your products to be featured the last week of each month, every other week, or weekly the goal is to find the optimum frequency to maximize the lift of your promotion. Though it is not your ultimate decision when and where your products are promoted, the use of competitive promotional intelligence can help Category Managers collaborate with their Merchants to find the optimal promotional frequency. A good recipe for earning collaborative time with your Merchants is to bring a well-supported argument for why your products should be promoted how you say they should. Taking a look at how competitive retailers have featured your products in the past is a logical starting point. A simple weekly trend of ad placements across each media type will provide a digestible view for your Merchant into competitive ad frequency. This information should quickly identify opportunities to adjust how frequently they are promoting your products, or how often they are promoting your products between media types. At the end of the day, what is good for your brand is good for your Merchant s category. Any information and recommendation that may drive incremental sales for your Merchant will be well-received. Challenge 3: Frequency vs. Competition Retailer Category Merchants struggle with ad frequency questions in a few different respects. First, much like gaining promotional share for your category relative to other Merchants, there is a battle among Merchants for better promotional frequency. Understanding how frequently competitive retailers have featured your categories and products historically will allow you to build a case for improving the frequency of your category. This is a very similar process to improving share for your category. The second issue that category Merchants face with respect to ad frequency is promoting different brands at the right price point on the right cadence versus competition. This is a difficult balancing act for Merchants making sure your promotion is competitive, while still allocating ad placements to all paying suppliers. There are a few best practices that help Merchants solve for this issue. First, knowing the average, high, and low promoted price within your category at your competitor retailers each week will allow you to better plan the ad frequency for both low and high priced products within your category. Second, for print and online promotions specifically, knowing week to week on what page competitive retailers featured your category can assist with ad frequency decisions. The goal of a competitive ad frequency analysis is to make educated decisions on how to promote your category based on the historical tendencies of your competition. 4 Ad Dynamics Best Practice Series

Challenge 4: Timing vs. Competition Manufacturer Ad timing can be mistaken for ad frequency, but they are two separate and equally important challenges facing Category Managers each year. Timing differs from frequency in that the focus is around key promotional events throughout the year. For apparel or office supplies manufacturers, Back to School is a key promotional event each year. For major electronics or video games manufacturers, Black Friday and Holiday are at the center of their promotional calendar. How your promotions are timed in the weeks leading up to these holidays can determine how you perform against your competition. For many manufacturers, these key calendar events can make or break their sales year in only a matter of weeks. Timing varies from industry to industry. If you are a supplier in the perishables space planning for a summer holiday, you will likely see a good return on a promotion timed close to the holiday, as shoppers avoid buying a perishable item weeks before the event for which they are shopping. For an electronics manufacturer planning for November and December, there are roughly six weeks between Black Friday and Christmas during which shoppers make the majority of their holiday purchases. To ensure your product promotions are timed to drive the most traffic during key promotional events, Category Managers need to both look at how their competitors have been promoted during the events in years past, and understand recent promotional trends to get a good feel for when shoppers will be most receptive of a holiday promotion. If you know when your competition is likely to be on ad in the weeks leading up to the promotional event, you can recommend timing to your Merchants that accounts for competitive threats prior to the event. Challenge 4: Timing vs. Competition Retailer Timing of promotions, of course, is of huge concern for retailers. Look no further than the print circular drops during Black Friday over the past few years. Retailers competing for those first Black Friday shoppers continue to make their Black Friday deals available to shoppers earlier and earlier each year. As a Merchant, timing of your category promotions during big calendar events is critical to the growth of your category, just as timing of the circular is critical to retailer s success. A Category Merchant for stationery products may want the bulk of their promotions to come during events like Back to School or Tax Season, whereas a Merchant that oversees live goods such as flowers or plants may benefit from an promotional push during the spring and summer holidays. A great way to map out the timing of your category promotions is to create a category level promotional calendar. The calendar view provides insight into which months throughout the year your competition tends to feature certain categories, so if your competitor features 90% of your category promotions during a three month period, you can construct your calendar around the competitive placements. In Summary Category Management does not have to be a reactionary practice for retailers and manufacturers. As we have discussed throughout this piece, many of the questions Category Managers and Merchants struggle with on a weekly basis in their effort to grow their category can be answered through the simple use of competitive promotional review and analysis in Ad Dynamics s terms, Best Practices. The use of these Best Practices can provide a structured, data-supported approach to improving the promotional share, pricing, frequency, and timing of your category, brand, or product line, which will put you in the best possible position for sales growth relative to competition. The Power of Market Intelligence 5